Energy Capabilities

15 Pages Posted: 26 Aug 2020 Last revised: 11 Sep 2020

See all articles by Henry Weil

Henry Weil

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: 2019

Abstract

Intelligent energy services often are enabled by the capabilities inherent in energy infrastructure. Potential capacity capabilities include security, reliability, resilience, and sustainability. These capabilities can change the dynamics of energy markets, stimulating additional demand and giving suppliers greater pricing power. To explain the significance of capacity capabilities this paper analyzes the basic dynamics of energy markets using a model that was developed at the Massachusetts Institute of Technology. Oscillating emphasis between capacity utilization and profitability leads to periods of steeply falling prices separated by price stability. Demand growth follows an irregular "stair step" pattern, driven by waves of price cutting and the macro-economic cycle The model shows how these dynamics occur, enables experiments with strategies for mitigating or escaping them, and highlights the critical role of capacity capabilities. A case study emphasizes the importance of infrastructure resilience. Resilience denotes the capability to contend with potentially disruptive impacts, for example, of extreme weather, operational failure, or cyber attack. The key energy platforms must be resistant to disruption, “fail soft” if disrupted, and bounce back quickly. The discussion draws on research at MIT and the U.S. Department of Energy. Investing in energy capabilities requires attitudes and behaviors that often do not exist in traditional energy suppliers, consumers, and risk managers. Tips for successful innovation in big businesses are offered.

Keywords: Energy markets, energy as a service, intelligent energy, resilience, cybersecurity, risk management

Suggested Citation

Weil, Henry, Energy Capabilities (2019). MIT Sloan Research Paper No. 6168-19, Available at SSRN: https://ssrn.com/abstract=3678996 or http://dx.doi.org/10.2139/ssrn.3678996

Henry Weil (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

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